Effect of Brexit on Your Capital Gains Tax

Britain’s exit from the European Union, or Brexit, as it is called, is a hotly debated topic and we have discussed it at length in our blog. In this article, we focus on the effect of Brexit on the capital gains tax (CGT) you might end up paying, if you decide to sell your property in Spain, for example, fast.

Prime Minister Theresa May is likely to trigger Article 50 of the Lisbon Treaty in 2017. So we don’t expect there to be any material changes until 2019 at least, which is when Brexit will become official.

This means there aren’t going to be any significant changes in the capital gains tax to be paid by you for the next two years at least. However, this might change in the future. Let’s see how.

How the European Union Influences Capital Gains Tax in Europe

According to EU regulations, indirect taxes such as VAT, customs and excise as well as direct taxes such as capital gains tax, income tax and corporation tax are to be strictly decided by the legislature of the member state. The European Union will have nothing to do with it.

However, this is not really the case in many countries as the EU exercises a huge influence over them, and even decides the direct taxes to be levied by the state. This has already been noticed in Greece, Cyprus and to an extent in Spain and Portugal, which were rescued by massive financial assistance from the European Central Bank (ECB).

So there is no question that the EU influences the CGT. How does this affect British expats who are looking to sell real estate abroad in Europe?

Many countries in Europe impose very high rates of CGT on the sale of real estate owned by non-residents. This is just a fact. In France, residents pay CGT at a rate of 19% and non-residents at 33.3% - which is a big difference.

It’s the same in Portugal where residents are charged 50% lower CGT than non-residents. In Spain, non-residents have to pay capital gains tax of 35% on the sale of a property.

What does the European Court of Justice (ECJ) have to do with it?

The ECJ gets involved if there is an infringement of some sort, such as a tax law that doesn’t make sense. All EU member states are required to accept the ECJ rulings and implement them in their domestic policies.

The ECJ has passed many judgments that alter the domestic tax law of some member states. Indeed, many British expats in Spain, Portugal and France have benefited from ECJ rulings that lowered the CGT to be applied to non-residents.

The ECJ forced France to lower the capital gains tax charged on the disposal of properties by non-residents from other EU countries, and bring it par with residents. The ECJ has made it possible for British expats in Portugal to be charged the same CGT as the locals by opting to be taxed as Portuguese residents.

So what happens after Britain officially leaves the EU?

Well, one of the biggest consequences of leaving the EU for British expats is that they cannot expect the ECJ to interject in their favour when buying or selling properties in Europe. This could mean being charged a higher, non-EU rate of capital gains tax, which nobody really wants.